Regulation II
Corner Post Inc. v. Board of Governors of the Federal Reserve System
Date: Dec. 29, 2025
Issue: Whether Regulation II’s (Reg. II) standard for reasonable and proportional interchange fees exceeds the Federal Reserve’s (the Fed) statutory authority and contradicts the Durbin Amendment.
Case Summary: ABA filed a coalition amicus brief urging the Eighth Circuit to reverse a North Dakota district court decision which vacated Reg. II.
Under the Durbin Amendment, the Fed must “distinguish between … the incremental cost incurred by an issuer for [its] role in the authorization, clearance, or settlement of a particular electronic debit transaction” and “other costs incurred by an issuer which are not specific to a particular electronic debit transaction.” The Fed also must consider the incremental costs incurred by an issuer for its role in the transaction when determining whether an interchange fee is reasonable and proportional.
In 2011, the Fed promulgated Reg. II, which permits issuers to recoup not only incremental authorization, clearance, or settlement (ACS) costs but also fixed ACS costs, fraud losses, transaction-monitoring expenses, and network processing fees. Reg. II also sets a universal fee cap of 21 cents plus five basis points of the value of the transaction (and allowed a one-cent adjustment if the issuer implements fraud prevention standards).
A different group of retailers first challenged Reg. II in D.C. federal court in 2013, which concluded Reg. II’s interchange fee provisions violated the Administrative Procedure Act (APA). On appeal, the D.C. Circuit reversed, applying Chevron deference that existed at the time. It concluded the Fed’s consideration of fixed ACS costs, network processing fees, issuer fraud losses, and transactions-monitoring costs was permissible, and thus deferred to the Fed’s interpretation.
On April 29, 2021, Corner Post filed a complaint in North Dakota federal court challenging Reg. II. The Board moved to dismiss as untimely under the six-year statute of limitations. Granting the motion, Judge Traynor ruled that Corner Post’s claims were time-barred because they first accrued in July 2011 when the Board published the rule in the Federal Register, rather than when Corner Post opened for business in 2018. The Eighth Circuit affirmed, but the U.S. Supreme Court reversed. In a 6-3 decision written by Justice Amy Coney Barrett, the U.S. Supreme Court ruled the APA’s six-year statute of limitations does not accrue until the plaintiff is injured by final agency action.
On remand, Judge Daniel M. Traynor of the U.S. District Court for the District of North Dakota vacated Reg. II, holding that the rule is contrary to law and the Federal Reserve exceeded its statutory authority. Judge Taynor temporarily stayed the decision to give the Federal Reserve time to appeal his decision and “to prevent interchange transaction fees from becoming a completely unregulated market.” Judge Traynor later stayed the vacatur of Reg. II pending the resolution of the appeal, “to prevent interchange transaction fees from becoming a completely unregulated market.
In its brief, ABA argued that including certain costs in the interchange fee cap is consistent with the Durbin Amendment’s text and purpose. The district court misread Durbin by treating a short list of costs as exclusive, even though Congress required interchange fees to be reasonable and proportional to all transaction-specific costs an issuer incurs. ABA emphasized the statute requires inclusion of the four cost categories the court disallowed because each arises directly from individual debit transactions. ABA also argued that adopting a uniform standard for all issuers and transactions was permissible, noting Judge Traynor wrongly concluded that Durbin requires different interchange fees for different issuers.
ABA also argued that slashing the interchange fee cap would not help consumers and would harm the debit card market. Merchants have not passed along savings from lower interchange fees, and consumers instead face higher fees and fewer free checking options. Even more so, banks have not earned excess profits from Reg. II, as many issuers still cannot recover even their allowable base costs. ABA emphasized that recovering actual, transaction-specific costs is necessary to keep debit cards safe, efficient, and reliable, especially as fraud continues to rise. ABA also warned further cuts to the interchange fee cap would hurt community banks by reducing the revenue they need to serve customers and support local economies.
In addition, ABA argued that affirming the district court’s erroneous interpretation of the statute would create a circuit split and disturb reliance interests by rejecting settled precedent and destabilizing the debit card market. The D.C. Circuit upheld Reg. II in 2014 in the NACS litigation, so a contrary ruling here would foster uncertainty by breaking with that persuasive authority, despite Congress’s long acquiescence. Moreover, overturning Reg. II now would upend the interests of issuers, merchants, and consumers who have long relied on the rule, after investing billions of dollars in payment infrastructure, fraud prevention, and technological innovation. ABA stressed that abandoning this settled interpretation would undermine legal stability, disrupt contracts and investments built around Reg. II, and damage a payment system that has long operated under a consistent and predictable regulatory framework.
Bottom Line: ABA urged the Eighth Circuit to reverse the district court’s decision vacating Reg. II, because the rule lawfully implements the Durbin Amendment, protects consumers and the debit card market, and preserves settled precedent and reliance interests critical to a stable payments system.
Document: Brief
